Speaking in a recent panel discussion, Sladen Legal principal Phil Broderick said the death benefit system is in need of review with both large and small funds seeing issues with binding death benefit nominations.
Mr Broderick, who is also co-chair of The Tax Institute’s superannuation committee, noted that that the death benefit system was created back in 1993 when most superannuation was in a defined benefit type systems.
“Upon the death of the initial member it went to the spouse and there was nothing left over — there wasn’t really accumulation amounts back then,” he said at the National Superannuation Conference.
“The system has changed now and people are dying with larger balances and, for a lot of people, it’s either their largest or their second largest asset, so we need a more modern death benefit system and BDBN system to take into account the modern complexities.
“[The Tax Institute] has been advocating for getting rid of some of the unnecessary restrictions that cause [BDBNs] to fail and cause problems down the track.”
While Mr Broderick said acknowledged that an overhaul of the whole system would be a significant task, in the meantime the Tax Institute would be advocating for smaller changes in this area.
“Ultimately [though], I’d love to see a review of the death benefit system. Let’s make it fit for purpose in a modern world,” he stated.
In a pre-Federal Budget submission earlier this year, the Tax Institute urged the government to make binding death benefit nominations non-lapsing by default in order to reduce unnecessary compliance costs.
While the Hill v Zuda decision has confirmed that the three year lapsing rule that applies to large funds doesn’t apply to SMSFs unless it is adopted in the trust deed, Mr Broderick said he’d like to see this removed for large funds also.
“Let’s get rid of the three-year lapsing rule, let’s allow both small and large funds to make non-lapsing BDBNs if that’s what the members want,” he said.
